Market News

BY Kayode Tokede

Following the increase in Cash Reserve Ratio (CRR) to 50 per cent by the Central Bank of Nigeria (CBN) last year,  a total of 10 deposit money banks declared a whooping N20.8 trillion mandatory reserve deposits with the CBN in the 2024 financial year.

The likes of Zenith Bank Plc, Guaranty Trust Holdings Company Plc (GTCO), eight others saw their mandatory reserve deposits grew by 41.6 per cent from N14.72 trillion declared in 2023.

Analysis of their  audited/unaudited accounts for year ended December 31, 2024 of United Bank for Africa (UBA) Plc, First Holdings Plc and Ecobank Transnational Incorporated Plc, revealed increasing deposits by the banks to central banks.

Others are:  Stanbic IBTC Holdings Plc, Wema Bank Plc, FCMB Group Plc, Sterling Financial Holdings Company Plc, and Fidelity Bank Plc.

The CRR is the minimum amount banks and merchant banks are expected to retain with the CBN from customer deposits and it carries no interest and is not available for use by the banks in their day-to-day operations.

It is one of the ways CBN regulates the country’s money supply, inflation level and liquidity in the country. The higher the rate, the lower the liquidity with the banks.

In early 2020, the apex bank’s Monetary Policy Committee (MPC) increased CRR by five per cent from 22.5 per cent to 27.5 per cent and in September 2022, it moved it to 32.5 per cent in a move to tame inflationary pressure.

The MPC at the first meeting in 2024 increased CRR to 45.00 per cent  from 32.5 per cent amid double-digit inflation rate. However, the committee at the second meeting in 2024, adjusted the CRR for Merchant Banks from 10.0 per cent to 14.0 per cent.

Currently, the CBN by regulation forces banks to retain up to 50 per cent of their deposits in CRR requirement, meaning that the deposits are not accessed by the banks for loans and advances.

The Governor of CBN, Mr. Olayemi Cardoso after the meeting in September 2024 said the members voted to raise the Cash Reserve Ratio of Deposit Money Banks by 500 basis  points to 50.00 per cent from 45.00 per cent and Merchant Banks by 200  basis points to 16 per cent from 14 per cent.

He said, “The Committee was, however, unanimous in recognising that a lot more is required to actualize the Bank’s price stability mandate. The MPC noted that  even though headline inflation trended downwards due to a moderation in food  inflation, core inflation has remained elevated, driven primarily by rising energy  prices. The uptrend poses severe concerns to Members, as it clearly indicates the persistence of inflationary pressures.

“Members thus, reiterated the need to  work in close collaboration with the fiscal authority to address the current  upward pressure on energy prices. The MPC noted the continued growth in money supply, recognising the need to curtail excess liquidity in the system as  well as address foreign exchange demand pressures. Members were also concerned about the growing level of fiscal deficit but acknowledged the commitment of the fiscal authority not to resort to monetary financing through  Ways & Means.

“Furthermore, members observed a strong correlation between FAAC releases and liquidity levels in the banking system as well as its impact  on the exchange rate. The Committee, therefore, agreed to increase  monitoring of future releases with a view to addressing its effects on price  developments.”

The policy, which started in 2019 has drawn criticisms from most of the banks and shareholders who have cited a drop in their profit as a major consequence.

A reliable source in one of the Tier-2 banks explained to THISDAY that continued debits of CRR by CBN is putting the banking sector under serious threat, stressing that the hike to 50 per cent has mounted more pressure.

When the policy was introduced, Banks were, however, complained bitterly that the CRR policy especially as it has affected their Net Interest Income.

Extracts from 2024 audited accounts revealed that, Zenith Bank, followed by UBA reported the highest mandatory deposits with CBN.

Zenith Bank in 2024FY declared N5.3 trillion mandatory reserve deposits with central bank, about 37 per cent increase over N3.9 trillion reported in 2023. 

Furthermore, UBA announced N3.9 trillion mandatory reserve deposits with central banks in 2024, representing an increase of 47 per cent from N2.66 trillion in 2023, while First HoldCo posted N3.63 trillion mandatory reserve deposits with Central Banks in 2024, up by 72.3 per cent from N2.11 trillion in 2023.

As for GTCO, it announced N1.96 trillion mandatory deposits with CBN in 2024, a growth of 19.3 per cent from N1.65 trillion in 2023.

GTCO in 2024FY results explained that the restricted deposits with central banks comprises of restricted deposits with central banks not available for use in the Group’s day-to-day operations.

GTCO in its investors and analysts presentation said, “The GTBank Nigeria had restricted balances of N1,963,565,533,000 with the Central Bank of Nigeria (CBN) as at December 31, 2024 (December 2023: N1,646,348,063,000). This balance is CBN cash reserve requirement. The cash reserve ratio represents a mandatory total Naira deposits which should be held with the Central Bank of Nigeria as a regulatory requirement. Despite the pressure from competition and the need  to cover for regulatory CRR debits, the Group  maintained an average liquidity ratio of 44.3per cent  during the period under review..”

Shareholders of these banks over the years have expressed displeasure about restricted deposits with the apex bank not making it available for banking operations.

Speaking with THISDAY, Chairman, Progressive Shareholders Association of Nigeria (PSAN), Boniface Okezie, said shareholders have been advocating to CBN to pay interest to these banks.

He said, “The funds deposited by banks to CBN are not used. If these funds are with banks, certainly it will enhance their earnings and returns to shareholders. It will create more banking expansion. The deposit fund is meant for bank customers and banks cannot make use of them.

“If CBN can pay at least three per cent of the mandatory funds collected from banks, it will go a long way to help banks to have more money and drive the real sector of the nation’s economy and pay robust dividend to shareholders.”